The Effect of Demonetization on the Remittance Industry for NRIs

On November 8, the Prime Minister of India, abruptly announced that the Rs.500 & Rs.1000, denomination notes will no longer be legal tender. This meant that 85% of the legal tender in circulation in India was rendered useless. And in its place a new Rs.500 currency note and a new denomination of Rs.2000, were introduced.

People had the option of either depositing the money into their own bank accounts or exchange the old currency for new ones.

The banks all over India were kept closed on the 9th of November, only to resume on the 10th November.

The initial limits per transaction were Rs.2000, for an ATM withdrawal per card Rs.10000 cash withdrawal per day and ?20000 per week. Rs.4000 could be exchanged for old notes for new ones. Deposit into account had no limits. Since then a lot of changes have been made.

The present situation is that you could withdraw Rs.2500, from an ATM. The weekly limit of Rs.20000, has been increased to Rs.24000. The currency notes exchange has been totally stopped, although the limit had increased in the interim to Rs.4500.

The other exemptions were in the form of acceptance of old notes at selected government department offices, payment of electricity bill, municipal or corporation tax, at petrol pumps, at government hospitals, buying train and airline tickets. These exemptions were withdrawn since November 24th. The old currency notes acceptance increased till 15th December, but later the date was capped till 2nd December. Highway Tolls were suspended till 14th November & then extended till 2nd December.

The result of the currency note demonetization has resulted in many fold increase in the use of Digital Wallets. Although the rise is too steep, in comparison to the past, but for a full cash less economy, India needs to go miles if not more. India has now become a less cash economy and progressing towards a cash less economy. The wallets limits which were Rs.10000, earlier without KYC have now been increased to Rs.20000. All the other limits and restrictions remain the same, on the wallets.

The main idea of this move has been to bring the black money into circulation plus the added benefit of rendering the counterfeit currency notes worthless. Further the agenda of this demonetization has been to blunt the force of the anti-national forces that were very active in parts of India, by the use of cash.

The counterfeit currency and terrorist financing although were an insignificant part of the sun total of the currency in circulation but at least the action has rendered the old currency counterfeits totally worthless. Which in turn will add to the economy, as a whole. The Reserve Bank of India (RBI) has claimed that the new notes are difficult to counterfeit. But there have been some stray reports from here and there of the new currency notes bring counterfeited. The government agencies are probing the same and these matte? are sub-Judies.

The black money gains are far too much to be realized after 30 days have passed by, but at least this is a new start.

On the short term, the Indian economy is going to shrink. But in the medium to long term the benefits are huge. The growth rate of India has been adjusted by the rating agencies from earlier estimates to 7.6% to 6.8% after the demonetization.

Also in the short term the ATMs have been rendered useless because the new currency notes required the ATMs of all banks to recalibrate the machines, so that the new currency notes could be dispensed. Till now only 34-40 % of the ATMs have just been recalibrated and the ATM service companies will take more time to do the necessary changes. But the process being time consuming will be completed before the financial year end in March.

In the meantime, some limits for Gold owne?hip has also come into the picture. Married women could possess 500 grams and unmarried women 250 grams of gold. But by and large there is big gaps in the unde?tanding and the same has not been rigorously followed. This notification came in the wake of the fact that the people who had unaccounted money were buying gold with the old currency notes at a much higher price than the free market.

Remittance services especially the cash payouts have also been hit hard, by this move. There is hardly any cash that is available in the payout counte? across India. The agents and sub agents have resorted to using digital wallets to their clients or the remittance end user.

In a nutshell, we can conclude that there is a lot of money but no or less cash in the Indian economy. How will this fare for the country is yet to be seen.

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